How Thailand spent 430 billion baht to cushion the last energy shock

Thailand has faced a similar energy shock before, and the government’s response to the Ukraine-Russia war offers a revealing template for how the country sought to shield the economy from surging global fuel costs.

In the wake of the Covid-19 crisis in 2020 and 2021, Thailand was hit by another major external shock in February 2022, when the war between Ukraine and Russia triggered a sharp rise in global energy prices. The impact on the energy sector bore clear similarities to the current crisis linked to the conflict in the Middle East.

That earlier disruption took more than a year to ease. At the time, the government of Prime Minister Prayut Chan-o-cha was in office, with Supattanapong Punmeechaow serving as energy minister and Arkhom Termpittayapaisith as finance minister.

Although global crude prices during the Ukraine-Russia crisis did not reach current levels, the effect was still severe. According to the Office of the National Economic and Social Development Council (NESDC), cited by secretary-general Danucha Pichayanan, Singapore diesel prices — Thailand’s benchmark reference — are now close to US$200 per barrel, compared with about US$135 per barrel during the Ukraine-Russia conflict.

As oil and gas prices soared in 2022, the Thai government used a mix of measures to keep diesel and electricity prices in check. These included support through the Oil Fuel Fund, cuts to diesel excise tax, and efforts to limit electricity tariff increases by asking the Electricity Generating Authority of Thailand (Egat) to absorb part of the cost.

Taken together, the three main measures resulted in additional public debt and lost state revenue of more than 438.671 billion baht.

The biggest direct fiscal sacrifice came from the diesel excise tax cut. The Finance Ministry repeatedly reduced excise tax rates on oil and petroleum products from February 2022 onwards, with diesel receiving the greatest focus because of its central role across the economy, from manufacturing and electricity generation to transport and logistics.

The ministry issued seven ministerial regulations to lower diesel excise tax in a bid to prevent retail prices from rising to levels that could derail Thailand’s post-pandemic recovery. The weaker baht, which pushed up crude import costs, added to the pressure. In total, the tax reductions cost the state about 156 billion baht in lost revenue.

The ministry estimated that every 1-baht-per-litre reduction in diesel excise tax would cut government revenue by around 2 billion baht a month, based on diesel tax payment volumes in fiscal year 2022.

The second major tool was the Oil Fuel Fund. As global oil prices surged during 2022, the government used the fund to subsidise diesel prices and keep them within a range of around 30 to 35 baht a litre.

To support this effort, the government issued an emergency decree allowing the Finance Ministry to guarantee loans for the Oil Fuel Fund worth around 150 billion baht, giving the fund enough liquidity to stabilise domestic prices amid global volatility.

At its worst point, the fund’s deficit reached 132.671 billion baht. Its position only gradually improved once tensions in the war eased and oil prices began to fall, eventually returning to positive territory.

The third major burden came from electricity costs. As gas prices climbed during the Ukraine-Russia war, Thailand’s fuel tariff, or Ft, rose throughout 2022, from the first billing cycle in January-April to the final period of September-December.

Average electricity rates reached 4.72 baht per unit. Even then, prices were not allowed to fully reflect the underlying cost. Instead, the government asked Egat to shoulder the gap, building up a cost burden of about 150 billion baht.

That debt has not fully disappeared. Around 36 billion baht still remains and is being gradually recovered through subsequent electricity tariff periods.

For the May-August billing cycle this year, the Energy Regulatory Commission is expected to raise power tariffs because the actual cost of electricity generation is above 4 baht a unit. However, the regulator has also proposed an alternative for the government: using 9.4 billion baht in unspent investment funds from the three state electricity authorities, under a clawback mechanism, to help ease the burden on consumers.

The lesson from the Ukraine-Russia energy shock is that no single tool was enough on its own. The government had to combine tax measures, subsidies, borrowing support and delayed cost pass-throughs to keep the situation under control.

It was also a reminder that such crises come at a substantial cost to the state, and that managing them requires not only multiple policy mechanisms, but also cooperation from the public and all related sectors if Thailand is to weather another period of global energy turmoil.